Management theories: are they different and do they work

Management Theories

Over the last several decades a number of different management theories have emerged. This is in response to the changing nature of business, where many organizations that were once the pinnacle of their industry face number of long-term issues. These different issues can take a profitable company and over the course of time work like a cancer. As it will slowly eat away at the culture, profitability and competitive advantages that a company once had. This can cause many organizations to fall into the precarious situation of seeing a sizeable decline in market share. Once this occurs, many in management will often wonder how their organization was able to find themselves in such a situation. Where, their once loyal customers will begin utilizing the products or services of their competitors. This is because, management lost focus on effectively increasing productivity, maintaining high standards of quality and ensuring that prices for various products remain competitive. A good example of this can be seen by looking no further than General Motors. Where, the company was considered to be the largest automobile manufacturer in world. Then, as the market conditions changed, management continued to embrace the policies of the past. As they would payout high amounts of dividends to shareholders, while maintaining their traditional pension / benefits plan for employees. At the same time, management was not anticipating a shift in the marketplace. Once this occurred, it meant that it would only be matter of time until the company would face a number of different financial challenges. Part of the reason for this was because management was not providing leadership on a number of different issues. (Bissonette, 2008) This is because the overall philosophy of management theory that they were using, allowed managers and executives to live under the delusion that everything was going to be fine. In order to effectively adapt to a world that is increasingly becoming more competitive, requires that all managers use strategies that will allow their company to adapt to what is occurring. This means that a variety of different management theories must be examined to determine which one would work best for the various challenges encountered. It is through comparing these different theories; that will provide the greatest insights as to how a company can adapt with the changes that are occurring in the world of business.

Contingency Theory

The contingency theory is when managers believe that using flexibility is best way that an organization should be structured. Where, you are using the different strengths of a particular manager to address a particular challenge. Then, when a different situation emerges, the organization will use the talents of another manager, to effectively grapple with that situation. Ultimately, this theory is supposed to be able to help an entity be able to deal with the various internal / external challenges. Where, it works well for those organizations that are small, with the managers / owners having more direct control of the production process. There are four basic ideas that are stressed under this theory to include: the design of any kind of subsystems must have the flexibility to adapt to this theory, there is no right way to manage, any kind of subsystems used must work well with each other and flexibility must be applied to ensure that you are using the different strengths of each manager effectively. In general, this theory would work well with those organizations that have a number of different products / services that they are producing out of one location. Where, flexibility must be consistently applied to deal with the various situations that will arise during the course of conducting business. For example, a small manufacturing company has four different lines of paint sprays that they are producing. Each one of the specifications and intended uses are different, as the company is marketing each of the different products to specific markets / customers. In this a particular case, the contingency management theory would work well because managers can adapt to changes quickly in the production. Where, the company could be producing large amounts of paint sprayers that will be sold through retail outlets to consumers. Then, once the economy slows they receive a large government contract for industrial paint sprayers. Since, the specifications are different, means that different managers would be more suited to dealing with the various issues that arise with this product. Therefore, the company will use a system that will work off of the knowledge and strengths of each manager for the different products offered (the contingency theory). (Martin, n.d.)

Like what was state previously, the contingency theory works well for those organizations that are smaller. In addition to helping to improve the production process, this theory also allows managers / owners to be able to most effectively deal with changes that are taking place outside of the business. Where, organizations will have to wrestle with the changing business / economic condition from: globalization, a more diverse work place, local laws / regulations and various customs / values of a particular area. Together, these different elements can allow smaller organizations to more effectively deal with the various challenges that are constantly occurring. ("Contingency Theory," 2010)

However, there are number of different weaknesses that the contingency theory has to include: it only works for organizations of a particular size, if there are differences between divisions / suppliers this could slow production and the overall assumptions made about employees. This theory has been applied to a variety of different organizations, which vary in size. What happens is some of the large entities have tried using either: a particular aspect of this theory or the theory itself. The problem when using such a system is: it requires managers to use common sense, to determine the most appropriate course of action. When a large entity uses this system there will be confusion between the different departments and mangers. As, the overall areas of responsibility become rather confusing. ("Contingency Theory," 2010) Once this takes place, it is only a matter of time until production falls as miscommunications have been known to occur. A good example of this would be with Enron, where the company relied on a more formal structure of giving managers in the field more flexibility. The problem with this kind of thinking is that many of these managers would convince upper management to go into deals that were not economically viable. As a result, many of the doomed projects that contributed to the company's downfall were based upon observations of what regional managers wanted. This was problematic because it did not take into account the financial viability of the company by engaging in such projects. Where, the former CFO Andrew Fastow admitted that some of these deals (such as the Cuiaba Integrated Project in southwestern Brazil) were very risky. With Fastow saying, "I did not want to own the Cuiaba power plant. I think (calling it) a very risky is an understatement." (Babineck, 2006) This is significant because it underscores the differences in philosophy between the CFO and the field managers. Where, they would see one particular aspect of a situation from their perspective. This is because the company did not provide them with a more formalized management structure, which meant that they would make stupid recommendations to headquarters. Instead of ignoring these different ideas, the upper management was influenced by them in such a way, that they would override concerns of the CFO. Over the course of time, one could infer that this in formalized structure, helped perpetuate the off the book partnerships that were used to hide the massive losses of the company.

When looking at the second weakness of this theory, if there are differences between divisions / suppliers this could slow production, it clear that increased amounts of flexibility under this theory can lead to communication problems. This is because the managers are given more flexibility, which means that the various divisions throughout the company will operate independently. Where, there could be difference in the various policies / procedures for different departments or between suppliers. Once this occurs, it could mean delays in receiving various components or the cooperation of other divisions / suppliers. This could become more challenging, as the various entities will have trouble communicating with each other. Over the course of time, this could cause productivity to decrease, as the various communication issues lead to divisions not receiving the resources or support, they require to achieve their objectives. ("Contingency Theory," 2010)

The third weakness with the contingency theory is that, it makes generalizations about employees. This means that a number of different tools and tactics must be used to ensure high levels of productivity. When you are using this theory, you are assuming that everyone responds to increased amounts of flexibility in the work place. However, the problem begins with this generalization that everyone will respond well to such a management structure. When in reality, there will be a percentage of productive employees that would thrive under a system with more structure. Since, this one lacks structure means that many employees can become confused about their responsibilities. Once this occurs, it can often lead to employee issues, where this confusion can become an issue of contention between the staff and management. As management is telling them to engage in particular activity, yet they don't understand why they are doing such tasks. Over time, this can cause moral to drop as those employees who do not thrive under such a system, begin to lower the overall positive attitude in the work environment. ("Contingency Theory," 2010)

Despite some of the obvious weaknesses, the contingency theory is effective for those organizations that are small. This is because the in formalized structure allows managers / owners the opportunity to adapt to changes that are occurring in real time. Where, they can use their experience and common sense to adjust to various business conditions. As a result, this allows such entities to remain agile for the various situations they will encounter. However, such a structure would work poorly for large organizations. This is because the overall amounts of flexibility, allows managers to have undue amounts of influence on upper management. Once this takes place, it means that the company will see a decrease in productivity. As those ideas, that should never reach the level of upper management are being considered as viable business decisions (no matter how wreck less they may be). ("Contingency Theory," 2010)

Systems Theory

The systems theory is when you are taking a number of different working parts and then organizing them into a complex system. The different parts that are relevant for this particular management theory would include: inputs, outputs, outcomes, feedback and the framework of the system. Inputs would involve everything that is initially going into the production process to include: the various natural resources utilized, people used to produce a particular product / service, technology and money. Outputs is when the various products or services are delivered to the different markets or customers. Outcomes is when the product / service is improving the overall quality of life for the organization / consumers. Feedback is the total amount of information that is received regarding the overall quality of the various products or services produced. This could include everything from consumer opinions to those views about the product / service with regulators. The frame work of the system would include all of the sub-systems that would be used as a part of the production process. The most important element of this management system is that all of the different parts are working simultaneously in conjunction with one another. Where, each part of the production process plays a critical role in supporting the other functions. As a result, many different large entities have found that using such a system allows them to create company wide guidelines. At which point, upper management can most effectively control costs and productivity for a number of locations around the globe. (McNamara, n.d.) For example a large computer manufacturer has operations around the globe ranging from production facilities in China and Mexico to various call centers (at strategic locations). To ensure that productivity remains high at the various locations around the world requires that a structured management system is in place. This will control costs and ensure that the maximum amount of productivity is utilized for each location.

There are number of different strengths that the systems management theory offers to include: structure, control and effective monitoring. Under this theory, everything is highly structured, with clear responsibilities and roles designated. This allows managers at different locations to know what they need to do to achieve their objectives. Once this takes place, it means that the overall levels of productivity will increase, as everyone knows their responsibilities and how to achieve the different production goals. (McNamara, n.d.)

Control is when upper management can be able to monitor what is happening at various locations around the world. This is important because when different issues arise, managers must be able to quickly address various issues that could affect productivity. Such as: if raw material prices were rising dramatically in one country, upper management would be able to see this in real time. This allows managers, to be able to more effectively control their inventories and costs, by monitoring how various internal / external factors could affect an entity. (McNamara, n.d.)

Monitoring is when managers can see what is taking place within the company itself or at a specific location. In this particular case, if something was happening at a particular location that managers were unaware of, its effects would be felt in real time throughout the management structure. This would allow upper management to realize that a particular problem could be developing at a particular location. Once this takes place, they can quickly address any issues without creating dramatic disruptions to productivity or the company's bottom line. (McNamara, n.d.)

The biggest drawback of the systems theory is that the different parts of the system are interdependent upon one another. This is significant, because during the course of conducting business there could be a number of different situations that could cause any one of the different pieces to break down. When this occurs, the chances increase dramatically that you could see a number of different divisions in the company come to a standstill. At which point, productivity will fall dramatically and the company is facing the realistic possibility that it could lose money. Once this hemorrhaging begins, it could be difficult to stop as a particular event can create gridlock. (McNamara, n.d.) A good example of this can be seen with Lehman Brothers, where the company had a number of different profitable divisions that were dependent upon the others for maintaining ample amounts of liquidity. When interest rates were low, the company began to engage in sub-prime mortgages as a way to increase their overall bottom line. While at the same time, the company was increasing its overall amounts of debt. These two factors would contribute to a liquidity crunch, as the number of foreclosures on sub-prime mortgage rose dramatically. At which point, Lehman Brothers lenders (most notably JP Morgan Chase and Citigroup) began to demand more assets, as collateral for the outstanding loans that the company had with both institutions. This caused the revenues from the other divisions to pay only a portion of the interest on the outstanding debt. Once this took place, it was only a matter of time until the company would face a liquidity crisis. As they were one of the largest financial institutions in the country, yet they did not have enough cash to maintain day-to-day operations. Looking beyond the most obvious, one could argue that the reason why Lehman Brothers failed was because they were using the systems management theory. Where, each of the different parts of the company were dependent upon the other divisions working together. As the economy slowed, the illiquidity of the mortgage division would cause ripple effects companywide. Where, the other profitable divisions were ineffective, because one critical piece of the business model could not function properly. As a result, it would only be a matter of time until the company would face bankruptcy. (Sandler, 2010) The reason why this is such a major drawback, is because of the lack of flexibility of this system, where the various parts are dependent upon one another. If an extreme situation occurs, the failure of any one of the different pieces could cause a system wide breakdown.

The systems theory works for large established entities that have various policies and procedures currently in place. This is because the overall structure of the management system is dependent upon all of the different working parts. Where, upper management can be able to see what is taking place at the company from a big picture, real time view. This allows for effective management of the operation, as the different pieces will tell managers if there is a problem However, the inflexibility of this system and the different parts being interconnected are also the biggest drawback. The reason why is because when extreme situations occur that could affect one of the parts of the management system, a total company wide break down would take place. At which point, the system does not allow managers the flexibility to quickly adjust to situations. If the problem is left unaddressed, this can act like a cancer and will slowly eat away at the most profitable of organizations.

Deming's CQI Theory

Deming's Continuous Quality Improvement theory (CQI) is designed to increase the overall quality of various products or services that are offered by an organization. Where, there is an emphasis on objectively analyzing various pieces of data, to tell you how the process can be improved. According to Deming, one of the major problems with competitors in a particular industry is: they are often obsessed about taking market share from their competitors. To effectively build an entity requires that these companies begin to work with each other in expanding the market, by providing high quality products or services. The higher standard of quality, will eventually build a following among consumers (who are willing to wait and pay more for a better product / service). Under this system, everyone is vital part of the organization, which can be able to increase productivity at an organization to the point, where everyone benefits. There a number of key points that are emphasized with this management system to include: imposing a system of knowledge, providing leadership, effectively managing people, analyzing the process through various charts and the ability of managers to follow the specifications laid out from the analysis. When managers are imposing a system of knowledge, they are teaching the staff about how to effectively communicate and coordinate with each other. This is important because there is a deep seeded belief that each person can contribute new ideas, which can improve the overall quality of the product / service. Where, managers are instilling in staff a new way of thinking, as they are considered a vital part of the production process. Then, each manager must allow each person to work according to their various skill sets. This allows them to effectively place each person in right job, which will utilize their different strengths. (Martin, n.d.)

Next, the manager must be a leader who will transform their organization. According to Deming, being a leader involves consistently setting the example, communicating with staff about your ultimate vision and always persuading employees to go the extra mile. Together, these different elements will allow employees to see that management is doing more than just paying lip service to a particular theory. Instead, they are focused on leading by example, where the various actions that they are encouraging their employees to engage in, they are doing. Over the course of time, this will build the overall amounts of confidence in management's ability to lead, as the staff will see them in a more favorable light. (Martin, n.d.)

The principal of effectively managing people is when you are looking beyond merit-based systems, which are often divisive and can destroy the self-esteem of various individuals. Instead, there must be an emphasis on what is known as intrinsic motivation. This is where you are emphasizing factors outside of monetary, to motivate employees. What happens is the overall pressure to increase profits; forces managers to offer various financial rewards to different employees, groups or teams. Over the course of time, this creates the atmosphere that everyone is nothing more than a profit tool to achieve the company's overall financial objectives. Once this takes place, it means that the overall quality of products / services will decline, as employees will see the work place as nothing more than a job. Instead, what managers must do is build intrinsic motivation. This where you are looking beyond various financial based incentives for motivating people, where there is an emphasis on: cooperation, building self-esteem, having a passion for learning new ideas and feeling respected. Together, these different elements will cause employees to see the workplace as something more than just a job. Where, the overall amounts of job satisfaction will be higher, at which point, employees will go the extra mile to ensure that customers are receiving quality products or services. (Martin, n.d.)

The principal of analyzing the process through various charts is when managers are looking at the data, to see what the different extreme scenarios could do to the production process. When the conditions are normal, the outcome is fairly easy to predict, as a range of variations would be easy to determine. It is during times of something unexpected, that these variations will difficult be to predict. To counter such situations Deming suggests that statistical analysis is conducted to see the overall effects under a variety of situations. This will allow for managers to have what is known as statistical control. Where, they can identify how various factors could affect the overall production process. (Martin, n.d.)

The principal of the ability of managers to follow the specifications laid out from the analysis; is when manager must follow the prescribed system that is determined, based on the analysis. This is important because, during the production process many managers will attempt to improve the procedure, based upon individual observations or one deviation that will occur. When this takes place, it possible for the manager to begin trying to micro manage the productions process, causing the overall quality and effectiveness to decrease dramatically. To avoid this situation, all managers must follow the prescribed strategy laid out by the analysis; this will allow the production process to flow smoothly. At which point, the overall quality of various products or services will improve dramatically, because the managers stayed within the guidelines that would maximize both factors. (Martin, n.d.)

The biggest weakness with using this theory is that, it can make an organization to successful. Where, managers will often believe that everything is going well and will stay that way. This is when the CQI theory can presents a number of different issues, as managers will abandon analyzing the overall quality of the products / services being delivered. Over the course of time, this will cause the company to begin to see a loss in productivity, as the loss of focus will have ripple effects all the way down to the staff. Once this takes place, it is only a matter of time until the different quality control standards will begin to decline. A good example of this occurred at Nissan during the 1990's, where the company would apply the different CQI principals to be able to gain dominance in many markets around the globe. However, the company success would lead to its own demise, as management would loose focus and build those models that were not in demand from consumers. By 1999, the situation became so bad that only four out of the company's 43 models sold were considered to be profitable. To turn the company around, a new CEO (Carlos Ghosn) began to focus on building those models that could address current and future tastes of consumers. ("Building Emotional Capital," 2004) These actions would save the company from bankruptcy, as managers were able to refocus and began to apply the principals of CQI. ("Building Emotional Capital," 2004)